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How much will oil cost next year?

The OPEC Ministerial Committee, at a meeting on December 6, decided to leave unchanged plans for a gradual increase in production, which in January will add another 400 thousand barrels per day to the market.

Although the market counted on a more conservative solution, this decision completely coincided with our expectations. In this regard, the reaction to the words in the first comments from the meeting that Russia recommends increasing production is indicative – on this news, prices fell below $ 66 per barrel.

Then they recovered quickly enough because they realized that it was not about an additional increase but commitment to previously reached agreements. As a result, OPEC has recently been trying not to make sudden movements and comply with previously called agreements as much as possible. So far, practice shows that this strategy bears fruit and removes excessive market volatility.

On the other hand, the alliance emphasizes at each meeting that it reserves the right to react in any direction to a significant change in market conditions and adapt its policy to them. So, at the December meeting, it was decided to closely monitor the development of the situation with the new strain. The volumes of oil produced from the US strategic reserve are not significant for the global oil market. They do not significantly affect either prices or OPEC’s policy to increase production. When news appears in one direction, volatility increases but then stabilizes.

The $70 per barrel is quite comfortable for oil producers and consumers. Above it, significantly above the level of $ 80, demand begins to slow down, and the already high inflationary pressure increases. A correction in oil prices in the range of $65-70 per barrel would benefit the global economy right now.

For most OPEC countries, the oil price in this range is also comfortable, ideally subject to the recovery of production volumes. The budget of Russia, for example, for 2022 has a cost of $ 62.2 per Urals brand. Therefore, anything above this price is a comfortable level for Russia.

Our current baseline scenario does not envisage an apocalypse from omicron, and in this case, we expect prices to return to the range of 75-80 dollars per barrel of Brent by the end of the year. In January 2022, we can expect the same level, but by the end of next year, according to our estimates, a barrel of Brent crude oil will cost about $ 70. However, significant negative news on the epidemiological situation and the restriction of movement may negatively affect prices.


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